(The following statement was released by the rating agency)
Nov 6 - Fitch Ratings has revised the Outlook on Metro AG's
(Metro) Long-term Issuer Default Rating (IDR) to Negative from Stable and
affirmed the IDR and senior unsecured rating at 'BBB'. Fitch has also affirmed
the unsecured rating of the notes issued by Metro Finance BV at 'BBB'. These
notes are guaranteed by Metro AG.
The Negative Outlook reflects the increased challenges faced by Metro in
reducing leverage due to the weak consumer environment primarily in southern
European countries and the group's exposure to non-food retail activities. Fitch
estimates that Metro's exposure to Spain, Italy, Greece and Portugal represents
about 12% of group's sales and 25% in Eastern European countries. Fitch expects
that weak consumer demand will continue to weigh negatively on the group's
operating performance, as evidenced by the revised guidance for group EBIT
before special items in FY12 at circa EUR2bn. As a result, Fitch expects Metro's
group lease-adjusted net debt/EBITDAR ratio to increase to about 3.5x in FY12
from 3.2x in FY11 which is high for the current 'BBB' rating level.
The 'BBB' rating continues to reflect Metro's size and leading market share
positions in many markets as well as its broad geographic diversification.
However, the protracted weak consumer sentiment, intense price competition from
food and non-food retailers and online retailers will continue to put pressure
on the group's performance and credit profile. Key challenges remain Metro's
capacity to improve like-for-like sales growth, improve profitability in its
consumer electronics division Media Markt and Saturn and food retail division
Real. In addition, Metro's consumer electronics business still needs to roll out
its internet platform and develop a successful multi-channel business.
The group's liquidity is adequate given the existing cash balances (EUR2.1bn as
at September 2012) and amount available of undrawn syndicated and bilateral
credit lines (EUR3.1bn) relative to the amount of short-term debt borrowings
Fitch has not factored any large asset disposals or divestment of the group's
non-core assets into its base case projections. Fitch also understands that the
group intends to review its capex programme and focus on working capital
management in order to reduce debt in 2013.
WHAT COULD TRIGGER A RATING ACTION?
Positive: future developments that may, individually or collectively, lead to
positive rating action include:
- Group's operating margin above 3% and improved operating margins in Metro's
core divisions, i.e. Metro Cash&Carry and Media Markt Saturn
- The divestment of the group's non-strategic activities, with cash proceeds
used to reduce debt could have a positive impact on Metro's financial position
and outlook, but is unlikely to lead to a higher rating,
- Group's lease-adjusted net debt/EBITDAR sustainable at or below 3x (3.5x on
FFO net lease-adjusted basis)
Negative: future developments that may, individually or collectively, lead to
negative rating action include:
- A further sharp contraction in performance, notably in the cash and carry
and/or consumer electronics divisions, or a fall in the group's operating margin
to below 2.5%, would have a negative impact on the ratings
- Group's lease-adjusted net debt/EBITDAR above 3.5x (4x FFO net lease-adjusted
(Caryn Trokie, New York Ratings Unit)